Musk Is Destroying Tesla's Underlying Business - Shortseller

News January 02, 2024

Stanphyl Capital's commentary for the month ended December 2023, discussing their short position in Tesla Inc (NASDAQ:TSLA).

Elon Musk built Tesla's absurd $800 billion market cap on the back of lie after lie and fraud after fraud, and now he's destroying its underlying business as those lies and frauds come home to roost, simultaneously alienating potential customers and (finally!) attracting scrutiny from worldwide government regulators. Margins and profits are plunging, and only death-spiral price-slashing prevents a plunge in deliveries.

Based on Q3's financials (a similarly awful Q4 is likely to be reported in January, with yet more price-cutting leading to more deliveries but at ever-worsening margins), Tesla is definitively now just a car company in financial decline, with negative earnings comps, a steadily sliding operating margin (in Q3 just 7.6%, 30% of which came from emission credit sales) and decreasing GAAP earnings ($2.12/share/year based on Q3 annualized in an industry with a typical PE ratio of around 6). And those margins will continue to decline as Tesla continues to slash prices, raise worker salaries in the U.S. and soon in Europe, and pay out of its own pocket government incentives that are being withdrawn. Yet on top of its rapidly declining business model Tesla also has a massive "fraud kicker"…

In 2019 Elon Musk claimed that the hardware in then-current Teslas (and every subsequent Tesla) would soon receive software to make them hugely profitable "robotaxis." As far back as January 2016 he claimed that every new Tesla had all the hardware needed to be completely self-driving and would receive the necessary software by 2018, and he "demonstrated" this with a completely fraudulent promotional video. Yet here we are in December 2023 and the NHTSA just forced Tesla to make its cars less self-driving via an upgrade of its driver monitoring system (an action safety experts say was highly inadequate, making more severe restrictions likely). This has been a huge consumer fraud and may be a basis for millions of people to sue Tesla for billions of dollars, while negatively impacting Tesla's current and future sales via negative publicity that has turned its so called "Autopilot" and "Full Self Driving" into laughingstocks. In 2022 Musk said that without self-driving, Tesla stock is basically worthless; needless to say, I agree with him.

On top of Tesla's massive "self-driving" fraud, in December Reuters published a huge exposé of Tesla's deadly and financially fraudulent multi-year cover-up of defective suspensions (providing yet more evidence of both Musk's sociopathology and Tesla's fraudulently low warranty reserve), thereby causing two U.S. Senators to demand a massive recall and, possibly related to those defective suspensions, in December it was revealed that Teslas crash more than any other brand of car.

Now let's put these massive safety deceptions and cover-ups into context: as bad as Tesla's public financials are lately, how much worse might they be "in reality"? I mean, why would anyone trust financial statements from a guy who's been caught lying and covering-up deadly safety defects multiple times over the years and cycles through CFOs the way McDonald's cycles through Gen Z fast-food workers???

In fact, in August Tesla's most-recent CFO suddenly quit (or was fired) on no notice, the latest in a series of sudden and unexplained Tesla CFO departures. This may be tied into the possibility that the DOJ is close to criminally indicting Elon Musk following the revelation of a massive & systemic Musk-directed consumer fraud regarding the range of Tesla's cars, his alleged attempted theft of company assets to build himself a house, and, in addition to the above-mentioned Reuters story, Handelsblatt's story about a massive & systemic Tesla safety cover-up while people continue to die in (or because of) Teslas at an astounding pace. In fact, Tesla's Q3 10-Q confirmed that the company has received multiple subpoenas regarding many transgressions. Whether from these crimes or something else, Musk will go down because fraudsters like him always do… even if he thinks he has an "airtight strategy" (blackmail?) to combat these regulators:

musk is destroying teslas underlying business shortseller

As for Tesla's latest hype story, "AI," the three top leaders of that team left the company in October… I'm sure things there are going great!

Meanwhile, Tesla will soon open its U.S. charging stations to cars from most other manufacturers which, in turn, will adopt Tesla's connector and charging protocol. (Those competitors are building their own networks, too.) Seeing as many people only buy a Tesla instead of a competing EV in order to access those chargers, and seeing as all the competing charging networks will also adopt this protocol while paying Tesla nothing (Tesla open-sourced it), this will cost Tesla far more in lost auto sale profits than the pennies per share it may gain from charging profits.

And Tesla has objectively lost its "product edge," with many competing cars now offering comparable or better real-world range, better interiors, faster charging speeds and much better quality. In fact, Tesla ranks near the bottom of the 2023 JD Power survey and its Model 3 is the worst car (out of 111!) in Germany's rigid safety inspection system!

Tesla's poorly-built Model Y faces competition from the much better made (and often just better) electric Hyundai Ioniq 5, Kia EV6, Ford Mustang Mach E, Cadillac Lyriq, Nissan Ariya, Audi Q4 e-tron, BMW iX3, Mercedes EQB, Volvo XC-40 Recharge, Honda Prologue and Polestar 3, as well as multiple Chinese models in Europe and Asia. And Tesla's Model 3 has terrific direct "sedan competition" from Volvo's beautiful Polestar 2, BMW's i4, Hyundai's Ioniq 6 and Volkswagen's ID.7, as well as many local competitors in China.

And in the high-end electric car segment worldwide the Porsche Taycan outsells the Model S, while the spectacular new BMW i7 and i5, Mercedes EQS and EQE, Audi e-Tron GT and Lucid Air make the Tesla look like a fast Yugo, while the BMW iX, Mercedes EQS SUV and Audi Q8 eTron do the same to the Model X.

And oh, the joke of a "pickup truck" Tesla first previewed in 2019 won't be much of a "growth engine" either, as by the time it might be in meaningful mass-production in late-2024 that grotesque-looking kluge will enter a dogfight of a market vs. Ford's F-150 Lightning, GM's electric Silverado, the Dodge Ram REV and Rivian's R1T.

Another favorite Tesla hype story has been built around so-called "proprietary battery technology." In fact though, Tesla has nothing proprietary there—it buys the vast majority of its cells from Panasonic, CATL and LG (while the "4680s" it's trying make itself are a manufacturing disaster with no meaningful advantage in energy density vs. the older "2170s" at the pack level), and it's the biggest liar in the industry regarding the real-world range of its cars. And even if Tesla does wind up successfully making some 4680 cells of its own, other manufacturers will gladly make and sell them to anyone, and BMW has already announced it will buy them from CATL and EVE.

Meanwhile, here is Tesla's competition in cars (note: these links are updated regularly)…

And in China...

Here's Tesla's competition in autonomous driving; the independents all have deals with major OEMs…

Here's where Tesla's competition will get its battery cells…

And here's Tesla's competition in storage batteries…

Thanks,

Mark Spiegel

Stanphyl Capital

Authored by Valuewalk via ZeroHedge January 2nd 2024